Received severance package but almost 50% was taken for taxes - why so high?

This is actually a common issue with severance payments. The IRS requires employers to withhold taxes on supplemental wages (which includes severance) at a flat 22% federal rate. However, if your severance exceeds $1 million, the rate jumps to 37%. On top of that, your employer also has to withhold for Social Security, Medicare, and state taxes. The reason your withholding was so high is that payroll systems often treat one-time large payments as if you make that amount every pay period, which pushes you into a much higher projected tax bracket. The good news is that when you file your taxes next year, you'll likely get a significant portion refunded since your actual annual income won't be as high as the system projected.

I went through something similar last year and was freaking out about how much tax was taken from my severance. I was completely confused until I found this service called https://taxr.ai that helped me understand exactly what was happening with my withholdings. You upload your paystubs and severance documents, and they break down exactly what taxes were withheld and why. The tool showed me that my company had used the aggregate method (like the previous person mentioned) rather than the flat rate method, which resulted in way more withholding than necessary. It also generated an estimated tax refund projection showing I'd likely get about 60% of the "extra" withholding back when I filed.

Just wanted to follow up. I actually tried the taxr.ai site after my initial skepticism, and I'm glad I did. Uploaded my final paycheck with severance and it immediately identified that my employer had withheld at almost 45% when it should have been closer to 30% total. The explanation was really clear - my employer had added my severance to my regular pay and calculated withholding as if I made that amount every pay period (putting me in a theoretical tax bracket I'd never actually reach). The tool showed I'll likely get around $4,300 back at tax time and gave me documentation explaining exactly why. Wish I'd known about this when I received my severance!

If you're having trouble getting clear answers about your tax situation, I'd recommend using https://claimyr.com to get through to an actual IRS agent. I had a similar severance withholding issue last year and spent DAYS trying to get through to someone at the IRS who could give me a straight answer. Claimyr got me connected to an IRS rep in about 15 minutes when I'd previously been hung up on multiple times after waiting for hours. The agent confirmed exactly what others here are saying - that severance is often overwithholded but I'd get most of it back when filing. You can see how it works in this demo: https://youtu.be/_kiP6q8DX5c

I need to eat my words from my previous comment. After getting nowhere for weeks trying to call the IRS directly about my severance withholding issue, I broke down and tried Claimyr. I got through to an IRS agent in about 25 minutes (compared to my previous failed attempts). The agent explained that my employer had used the aggregate withholding method instead of the supplemental wage method, which resulted in about 47% withholding on my severance. She confirmed I'd get most of the excess back when filing and even told me what documentation to keep from my employer to make filing easier. Saved me so much stress knowing exactly what happened instead of just guessing.

I was an HR payroll specialist for 8 years. Here's what's happening: When processing severance, employers can choose between two withholding methods: 1) Flat rate method - withhold a mandatory 22% federal + FICA + state taxes 2) Aggregate method - add severance to regular pay and withhold as if that were your regular salary Many payroll systems default to the aggregate method, which often results in MUCH higher withholding percentages. Your employer chose (or their system defaulted to) the aggregate method, which is why you're seeing nearly 50% withholding. You WILL get the excess back when you file your taxes. Your actual tax liability is based on your total annual income, not the rate at which each payment was withheld.

Did they pay out any accrued PTO or vacation time separately? Sometimes companies split severance from PTO payouts, and the PTO portion might be taxed differently.

I'm so sorry you're dealing with this stress on top of being laid off. Based on what everyone's explained here, it sounds like your employer used the aggregate method which is why your withholding was so high. One thing that might help with immediate cash flow - if you haven't already, file for unemployment benefits right away. The process can take a few weeks, so don't wait. Also, if you have any other income sources this year (freelance work, part-time job, etc.), you might want to adjust your withholding on those to claim more allowances since you'll likely be getting a large refund anyway. Keep all your severance documentation organized for tax time - you'll definitely want to show your tax preparer exactly what was withheld. The good news is that excess withholding essentially becomes a forced savings account that you'll get back next year, even though I know that doesn't help your immediate situation.

I'm really sorry you're going through this - losing a job is stressful enough without having to worry about unexpected tax withholding issues. What you're experiencing is unfortunately very common with severance payments. The key thing to understand is that this high withholding rate doesn't reflect your actual tax liability - it's just how the payroll system calculated the withholding. When you file your taxes next year, the IRS will look at your total annual income and calculate what you actually owe. Since your annual income will likely be much lower than what the payroll system projected when it withheld at nearly 50%, you should get a significant refund. In the meantime, definitely file for unemployment benefits right away if you haven't already. The process can take several weeks, so don't delay. You might also want to consider consulting with a tax professional early next year to make sure you're maximizing your refund and taking advantage of any deductions available to you as someone who was unemployed for part of the year. Keep all your severance documentation organized - your final paystub, any severance agreement paperwork, and records of what was withheld. This will be crucial when you file your taxes.

I'm really sorry to hear about your layoff and the shock of seeing such a high tax withholding on your severance. What you're experiencing is unfortunately very common, and the good news is that you'll likely get a substantial portion of that money back when you file your taxes. As others have mentioned, your employer probably used the "aggregate method" where they added your $37k severance to your regular pay and calculated withholding as if you earned that amount every pay period for the entire year. This temporarily pushes you into a much higher tax bracket for withholding purposes, even though your actual annual income won't be nearly that high. Here's what I'd recommend for your immediate situation: 1. File for unemployment benefits TODAY if you haven't already - don't wait, as it can take weeks to process 2. Contact your former employer's payroll department to get a detailed breakdown of exactly what was withheld (federal, state, FICA, etc.) 3. Keep all your severance documentation organized for tax time 4. Consider consulting with a tax professional early next year to maximize your refund The 50% withholding rate seems excessive even for the aggregate method, so there might be additional factors at play. Getting that breakdown from payroll will help you understand exactly what happened and estimate your potential refund more accurately. Hang in there - this financial stress on top of job loss is really tough, but you should see most of that overwithholding come back to you next year.

This situation is really frustrating, and I completely understand your concern about having less cash available while job hunting. From what I've seen in similar cases, the 50% withholding rate suggests your employer definitely used the aggregate method, which can be brutal on larger lump sum payments. Here's something that might help with immediate cash flow planning: You can actually estimate your potential refund fairly accurately. If your total annual income (including the severance) ends up being significantly lower than what the withholding system projected, you should get back most of the difference. For a $37k severance with $15,227 withheld, if your actual tax liability on that amount should only be around $8,000-9,000 (depending on your total annual income and filing status), you could potentially see a refund of $6,000+ just from the severance overwithholding alone. I'd definitely echo what others said about filing for unemployment immediately and getting that detailed breakdown from payroll. Also consider whether you might want to file your taxes as early as possible next year (late January/early February) to get that refund sooner rather than waiting until April. The IRS typically processes early returns pretty quickly, which could help bridge the gap while you're job searching. Keep your head up - this overwithholding is essentially a forced loan to the government that you'll get back with interest (if you file early enough in the year).

I'm so sorry you're dealing with this on top of losing your job - that's a really tough situation. What you're experiencing is unfortunately very common with severance payments, and the good news is you'll likely get a significant portion of that money back when you file taxes. The nearly 50% withholding rate strongly suggests your employer used what's called the "aggregate method" - they essentially added your $37k severance to your regular pay and calculated withholding as if you made that amount every single pay period for the entire year. This temporarily pushes you into a much higher tax bracket for withholding purposes, even though your actual annual income won't justify that rate. For immediate relief, definitely file for unemployment benefits right away if you haven't already - the approval process can take several weeks. Also consider calling your former employer's payroll department to get a detailed breakdown of exactly what was withheld (federal, state, FICA, etc.). This will help you better estimate your potential refund and have proper documentation for tax time. The harsh reality is that this overwithholding essentially becomes a forced interest-free loan to the government, but you should see most of it returned when you file next year. Consider filing your taxes as early as possible (late January/February) to get that refund sooner while you're job searching. Hang in there!

I'm really sorry you're going through this - getting laid off is stressful enough without the shock of seeing such aggressive tax withholding on your severance. What you're experiencing is unfortunately very common, and I wanted to share some perspective that might help. The nearly 50% withholding rate almost certainly means your employer used the "aggregate method" where they added your $37k severance to your regular pay and calculated taxes as if you earned that combined amount every pay period for the entire year. This temporarily pushes the withholding calculation into a much higher tax bracket, even though your actual annual income won't justify that rate. Here's what I'd focus on for immediate next steps: 1. **File for unemployment benefits immediately** if you haven't already - the process can take 2-4 weeks, so don't delay 2. **Call your former employer's payroll department** to get an exact breakdown of what was withheld (federal, state, FICA, etc.) - this will help you estimate your refund 3. **Keep all severance documentation organized** for tax time 4. **Plan to file taxes early** next year (late January/February) to get your refund sooner while job searching Based on the numbers you shared, you could potentially see a refund of $5,000-7,000+ from the severance overwithholding alone, depending on your total annual income. Think of this as a forced savings account that you'll get back - frustrating now, but that money is coming back to you. Hang in there during the job search. This financial stress on top of unemployment is really tough, but you should see most of that overwithholding returned when you file.

I'm really sorry to hear about your layoff and the shock of seeing such high tax withholding on your severance. What you're experiencing is unfortunately very common, and while it's incredibly frustrating right now, there is light at the end of the tunnel. The nearly 50% withholding rate strongly indicates your employer used the "aggregate method" - essentially treating your $37k severance as if you earn that amount every pay period for the entire year, which pushes the withholding calculation into a much higher tax bracket temporarily. Your actual tax liability will be based on your total annual income, which will likely be much lower. A few immediate steps that might help: **File for unemployment benefits TODAY** if you haven't already - the process can take weeks and you don't want to lose any potential benefits while waiting. **Request a detailed withholding breakdown** from your former employer's payroll department. Ask specifically for federal, state, FICA, and any other deductions. This will help you estimate your refund more accurately. **Plan to file taxes early next year** (late January/February) to get your refund as soon as possible while you're job searching. Based on your numbers, you could potentially see a refund of $5,000+ just from the severance overwithholding. I know this doesn't help your immediate cash flow situation, but try to think of this as a forced savings account that you'll get back. Keep all your severance documentation organized, and consider consulting with a tax professional early next year to make sure you're maximizing your refund. Hang in there - job searching is stressful enough without this added financial pressure, but you should see most of that overwithholding returned to you when you file.

I'm really sorry you're going through this difficult situation. Losing a job is stressful enough without the shock of seeing such aggressive tax withholding on your severance pay. What you're experiencing is unfortunately very common with severance payments. The nearly 50% withholding rate almost certainly means your employer used what's called the "aggregate method" - they basically added your $37k severance to your regular pay and calculated withholding as if you made that combined amount every single pay period for the entire year. This pushes the calculation into a much higher tax bracket temporarily, even though your actual annual income won't justify that rate. Here's what I'd recommend for immediate steps: **File for unemployment benefits right away** if you haven't already - the approval process can take 2-4 weeks, so don't delay this. **Contact your former employer's payroll department** to get a detailed breakdown of exactly what was withheld (federal, state, FICA, etc.). This will help you better estimate your potential refund and give you proper documentation. **Keep all your severance paperwork organized** for tax time - you'll want everything ready when you file. **Plan to file your taxes early next year** (late January/February) to get your refund as quickly as possible while you're job searching. Based on your numbers, you could potentially see a refund of $5,000-7,000+ from the severance overwithholding alone. Think of this as a forced savings account that you'll get back - it's incredibly frustrating now, but that money is coming back to you when you file your taxes. Hang in there during your job search. This financial stress on top of unemployment is really tough, but you should see most of that overwithholding returned to you next year.

I'm so sorry you're dealing with this on top of losing your job - that's an incredibly stressful situation. What you're experiencing with the high withholding is unfortunately very common with severance payments, but the good news is you'll likely get a substantial portion back when you file your taxes. The 50% withholding rate definitely suggests your employer used the "aggregate method" where they combined your severance with regular pay and calculated taxes as if you earned that amount every pay period all year long. This temporarily pushes you into a much higher withholding bracket, but your actual tax liability will be based on your real annual income. A few things that might help right now: **File for unemployment immediately** if you haven't - it can take weeks to process and you don't want to miss out on benefits while waiting. **Get a detailed breakdown** from your former employer's payroll department showing exactly what was withheld for federal, state, FICA, etc. This will help you estimate your refund more accurately. **Plan to file taxes early** next year (late January) to get your refund as quickly as possible while job searching. Based on your numbers, you could potentially see a $5,000+ refund just from the severance overwithholding. Think of it as forced savings that you'll get back - frustrating now, but that money is coming back to you. Keep all your severance documentation organized and hang in there during the job search. This financial pressure is really tough, but most of that overwithholding should be returned when you file.